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China to see gas demand soar by 20% in 2011

08:33, January 30, 2011

A worker at a PetroChina natural gas factory in Suining, Sichuan province. Gas consumption in the nation could rise by 20 percent this year, according to the National Energy Administration. Zhong Min / for China Daily&$ China's natural gas demand will rise 20 percent in 2011 to 130 billion cubic meters (cu m) and production will increase 16 percent to 110 billion cu m, according to a statement from the National Energy Administration (NEA) on Jan 28. According to the NEA, China's gas consumption in 2010 was 110 billion cu m, a rise of 20 percent year-on-year. Meanwhile, production was 94.48 billion cu m, a 12 percent increase from 2009. Wang Siqiang, deputy director at the NEA, said the expansion of the nation's pipeline coverage means that natural gas consumption will keep increasing rapidly in the coming years. In addition to the areas close to production sites for gas, which are traditionally major consumers, other areas, such as Bohai Bay, the Yangtze River and the Pearl River Delta regions, will also become consumers as their economies expand. "The consumption growth rate will be more than 20 percent in the next 10 years because this is now the peak period for China's urbanization and industrialization," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. The country's 2011 power demand may rise 9 percent to 4.5 trillion kilowatt-hours, and the power-generating capacity will increase by 80 gigawatts (gW), bringing total capacity to 1,040
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gW, according to the NEA. The increases in generating capacity will result in greater consumption of coal, the country's biggest energy source, which in turn will increase the demand for natural gas. However, Lin said natural gas, as the major substitute for coal, has an obvious disadvantage as its price is high and will rise further in the future. "The price of imported natural gas is twice as high as that in the domestic market. Even after the government's price adjustment, it is still 60 to 70 percent higher," Lin said. "Also, I believe the increase in imported natural gas will influence the domestic price, driving it higher," he said. "As a clean-energy resource, it will definitely cost more because of the increasing demand," he added. China imported 9.34 million tons of liquefied natural gas (LNG) in 2010, up 75 percent year-onyear. Xu Bo, senior analyst at China National Petroleum Corp (CNPC), said the country produced 9 million tons of LNG in 2010 and estimated that 2011 production will reach 19 million tons, according to an interview he gave to Caijing.com.cn. Lin said that as a supplement to natural gas, imports of LNG may decline if China's natural gas consumption keeps increasing.

Source: China Daily

"China to See Gas Demand Soar by 20% in 2011 - People's Daily Online." People's Daily Online - Home Page. Web. 30 Jan. 2011. <http://english.peopledaily.com.cn/90001/90778/7276466.html>.

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Demand, stands for the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. Demand for a good or service is determined by many different factors other than price, such as the price of substitute goods and complementary goods. In extreme cases, demand may be completely unrelated to price, or nearly infinite at a given price. Supply, is the total amount of a good or service available for purchase; along with demand, one of the two key determinants of price, the supply curve is usually sloping up, since manufacturers would want to produce more as price increases. China had a real GDP growth rate of 9.8% , as of 2009. China's swift economic growth has undoubtedly helped it to achieve a high level of prosperity and quality of living standards within its economy. 2 "China imported 9.34 million tons of liquefied natural gas (LNG) in 2010, up 75 percent year-on-year. " The demand increase, is due to its population demanding more clean energy, rather than its previous/major substitute, coal. Price for natural gas is high, and will most likely keep increasing over the years. The Chinese government is taking precautions in order to increase their supply of natural gas in the long term. They are investing millions on their natural gas infrastructure development. In the short term, citizens will either have to tolerate the over-priced energy source, or they might decide to opt for a close substitute, such as coal. Although since demand for natural gas is somewhat inelastic, most of China's population might keep on using natural gas as electricity generator. China's energy consumption currently ranks second in the world after the US, and is predicted to keep increasing due to China's economic growth (increase in GDP).
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<http://www.state.gov/r/pa/ei/bgn/18902.htm>

Article Page 2

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China's gas imports have increased since 2010. Shown in the diagram, is the progress from 2010-2011 involving their consumption of natural gas. D1 represents China's demand for natural gas last year, and D2 represents its demand in 2011. The increase in demand for natural gas, has created a shift to the right in its demand curve, which would naturally cause the equilibrium price to increase from EP1 to EP2, hereby explaining the quote by Lin in the second page, claiming that natural gas is at a disadvantage as it is not the country's main energy, so hereby the price will increase in the long term. The shift in demand over the year, has transported China's natural gas economy from E1 to its new equilibrium point E2. China's demand for natural gas is increasing more hastily than their supply of it (first paragraph of the article), if they keep going at this pace, their economy's imports will leave their exports far behind. When looking at what the government is doing to increase natural gas supply, it can be seen that in the long term, it is a positive externality, natural gas has a lot of benefits over coal usage. Not only is it not harmful to our ecosystem, it is also multi-purposed (you can heat your home, cook your meals, etc.), and you can depend on it. Of course this positive externality will only take action in the long term, in the short term governments are still finding ways to make their energy cheaper, and more "green". The production of gas in China, as the benefit to society is larger to that of the firm producing it. Positive Socially Beneficial consumption creates a positive externality for the Chinese, and the government should subsidize the producers, as they are helping the environment. The subsidy will increase the marginal benefit they receive when the customers consume the good.

In this graph, we can clearly see that gain caused by this positive externality. The benefit that it gives the environment is greater than their private benefit. The dark area represents the gain brought on by this positive externality. The Chinese economy's incredibly rapid growth has forced the Chinese government to take measures. The Chinese government has been investing a lot on natural gas production, which will create more supply, to hopefully satisfy the demand for it to the public. In the article, the economists claim that if China's natural gas demand keeps increasing, they might face a severe problem. 749 words

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